Crisp Cookware\'s common stock is expected to pay a dividend of $1.5 a share at

Question

Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year (D1 = $1.50); its beta is 0.75; the risk-free rate is 4.2%; and the market risk premium is 5%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $24 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest cent.

Explanation / Answer

Expected Rate of Return=RF+B*Risk Premium=4.2+0.75*(5) 7.95 0.0795=(DIV/P)+g=(1.50/24)+g or 0.0795=0.0625+g or g=0.0795-0.0625 0.017 or 1.7% So the dividends are Amount PV@7.95% 1.5 1.39 1.53 1.31 1.55 1.23 Total 3.93 Price=PV of Dividend/Expected Rate of Return=3.93/0.0795 49.43

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